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How to Repair Your Credit

by: Sean Michaels

Update: 09/2021


The word “Credit Score” means more than just a number. This number is probably the second most important number in the US, after someone’s social security number.

A person’s financial life rides on the credit score he/she has. While it can be a source of pride for some, it can cause agony for many. A credit score is what decides on the kind of life-style a person has and can plan to have in the future.

What is a “Credit Score”?

A “Credit Score”, commonly known as the FICO score in the US, is a number attached to a person’s creditworthiness. A careful analysis of a person’s pattern of borrowing, spending, and repayment dictates this number.

This number tells creditors if a borrower will make the payment, make it on time, default, or foreclose. This tells them most of the things they need to know about the risks involved in lending to a certain person.

Lenders use the credit score of an individual to decide on whether he/she:

  • can qualify for a loan
  • the interest rate to be fixed
  • the credit limit on a credit card

All three major credit bureaus: Equifax, TransUnion, and Experian, have the credit report information of people, based on the creditors they service. The credit score is mostly based on the information in the credit report.

On a scale of 350-800, a credit score of over 700 is considered good.

How to Repair Your Credit

What is a Poor Credit Score?

A credit score between 580 and 619 is considered a Low credit score. A poor credit score is an indicator of a person’s financial health to a lender. A person’s spending and the liabilities (loans, credit card outstanding balance, mortgage, etc.) is what is considered while calculating the credit score, and not the income.

Consequences of having a Poor Credit Score

A poor credit score can have several repercussions, as it is an indicator of a person’s financial health.

  • Banks may use this information to accept or reject a credit card or loan application
  • Service providers may use this information to decide whether a person should pay a security deposit or not
  • Insurance rates for cars are decided based on credit scores
  • Poor scores may lead to higher interest rate on mortgage and loans
  • Lesser credit limits on cards

Fixing a Bad Credit Score

After the recession in 2008, many people got driven into debt because of their financial practices, tough lenders, health care expenses, and so on.

Since a poor credit score can derail the financial plans people have, like buying a house, or car, repairing a bad credit score has become very important.

Fixing a bad credit score can either be a “Do It Yourself” exercise, or can be done through Credit Repair Companies.

What is Credit Repair?

A poor credit score could be due to several reasons like:

  • late payment
  • non-payment
  • fore-closure
  • repossessions
  • account being charged off
  • defaulting on a loan payment
  • filing bankruptcy
  • maxing out credit cards
  • high outstanding balances
  • closing cards that have outstanding balances, to name some


Every time one of the above happens, the creditor leaves a negative remark on the defaulter’s credit report, which acts as a red flag for other creditors.

Credit repair is about removing the negative items in the credit report and increasing the FICO score.

Repairing Credit – Do it Yourself

The Federal Trade Commission found that 1 in every 5 credit reports have some inaccurate data in them, coming from at least one of the agencies, due to various reasons.

If these inaccuracies can be spotted, removing them from the report can make a difference to the scores.

With a little information and help, repairing credit can be done individually.

  • The first step to this exercise would be to procure a credit report.

A person in the US is entitled to a free credit report from the 3 credit reporting agencies once every 12 months. These can be ordered at the same time or can be spaced through the year.

This report will shed light on the financial spending of a person. It can also give information on identity theft if there has been such an instance.

There are special circumstances when a free report can be procured, outside of the normal once every 12 months window.

If there is an action against a person such as denial of credit application, insurance, or employment, the person can ask for a free credit report within 60 days of receiving the notice about the action.

  • The next step is to find inaccuracies or incomplete information.
  • Once this is done, the inaccuracies can be disputed, or completion of information can be requested.

Both the Credit Reporting Company and the information provider are responsible for correcting the inaccuracies or incomplete information in the credit report, under FCRA.

There are several laws:

  • The Fair Credit Reporting Act
  • Fair Credit Billing Act
  • Fair Debt Collections Practices Act, which gives individuals the right to dispute inaccuracies in their credit report.

An individual can procure their credit report, identify inaccuracies, and communicate with the creditor for their removal from the report. However, this is not advisable, unless the person is a lawyer, or an expert in finance.

Relating to the time required, the protocols involved and the legalities, the credit repair process can become tedious for any individual.

This is where credit repair companies can help people increase their FICO score.

What are Credit Repair Companies?

Credit repair companies help people fix their FICO scores, by removing the negative items from the credit report. The negative items can vary from liens, foreclosures, late payments, non-payments, repossessions and many more. This can help people procure a car, house, credit card or loan easily.

The main reason behind a credit repair company’s existence is the inequality between creditors and borrowers, with respect to credit reports.

The services provided by the credit reporting companies is mostly for creditors. These agencies are not directly responsible for the scores, or inaccuracies in the borrower’s report. Hence, to identify and remove mistakes and inaccuracies, credit repair agencies are required.

Credit repair companies usually have lawyers as their agents to dispute the inaccuracies, after they have been identified.

How do Credit Repair Companies Work?

Most credit repair companies work in the following ways:

  • First, they will obtain a person’s credit report from all 3 credit reporting agencies: TransUnion, Equifax and Experian
  • The next step is to identify and dispute incorrect items in the report
  • Communicate with lenders and credit bureaus to remove the negative items, as soon as possible

How to Choose the “right” Credit Repair Company?

Since fixing credit scores has become important nowadays, companies claiming to repair credit scores have mushroomed everywhere.

In this scenario, it is important to research the companies, before seeking the best credit repair services. There are a couple of signs that can help a person identify a good credit repair company.

  • Back out, if a company asks for fees upfront. Fees should only be paid when services are utilized, and no reputed credit repair company will ask for fees upfront.
  • Check the company’s credentials, with respect to bonding, license, and insurance.
  • Check the company’s knowledge by asking questions about open credit lines, percentage of on time payments, and so forth. A stellar company will know the right answers, and solutions to fix problems.
  • The company’s willingness to respond to its customers and their queries.
  • Will there be a dedicated person who will handle your account?
  • What are my rights?
  • Is there a specific time to communicate, or is it a 24/7 customer line?
  • Will there be a penalty if I change my mind?
  • Their willingness and competence to provide you with communication, to track your progress.

A good company should have all the above-mentioned credentials, and will not have a problem sharing this information. Many companies have an online portal, which can be easily accessed by customers. However useful this might be, it is vital for companies to have a person the customers can talk to.

This is because of exceptions that may arise in several cases. Since these might not be addressed by the portal, or by the FAQs, a person who has the required knowledge can help.

It is also important to be cautious about companies that make claims about the results, without even assessing a person’s credit report.

What do the credit repair companies do, to improve the FICO score?

Many credit repair companies have a free consultation with customers to assess the type of issues on the report, and to enlighten the customer.

This will help the customer and the company to set a realistic goal (score) that they can achieve. Once the initial consultation is done, the next step is:

  • To identify repeats and mistakes

This can be done by the individual, or by the company. Once these items are identified, the company can get these items removed, thereby improving your score.

  • Dispute inaccurate information

Even though an individual can identify inaccurate information, the expertise of a credit repair company is invaluable when disputing it.


Since the credit repair companies interact with the credit reporting agencies all the time, they will know the protocol for a dispute well. This helps them understand which of the items can be removed easily, and which ones take longer.

  • Following up with change, after information is updated

Credit repair companies can also help negotiate a mutually acceptable deal between the borrower and the lender, to fix late payments or non-payments.

When this deal is set, the negative remark on the credit report can be erased by a letter of goodwill sent by the creditor.

However, in some cases, the creditor might want the borrower to make a couple of payments, before sending out the goodwill letter to the credit reporting agency. Hence, there may be a delay in the score getting updated, even after things have been fixed.

Various Service Packages

Several Credit repair companies offer free first consultations. This is to help the customer understand their current credit position, before deciding to sign up.

Once the customer decides to sign up, there are several options available.

Monthly Fees

This service involves a monthly fee that is paid to the credit repair company. The company in turn:

  • Procures credit reports from the agencies
  • Identifies mistakes and inaccuracies in the report
  • Contacts the companies responsible for the removal of the same

The law has requirements in place about the time the creditors can take to respond to inquiries. The total time taken for the above-mentioned process and the pace of the process will decide on the total amount required for the service (number of months required, monthly fee).

Result Driven

Some companies charge based on results. Initially, they might just charge a nominal amount to get the mistakes and inaccuracies removed.

Once that is done, they may then get into a discussion with the creditors, to find out acceptable payment terms to take off the negative remarks. This involves communication between creditors and credit reporting agencies, once a deal has been agreed upon.

Customers must find out from the Credit repair companies about their follow-up mechanism to understand these types of correspondence.

Points Improvement

Under this service, the payment to the credit repair company is based on the improvement in the credit score. The number of points the score goes up by is linked to the payment.

This may sound like a better package than the other two, but it needs some thought.

Such an option may not be the solution to serious credit issues like foreclosures or non-payment.

Since many reports have inaccuracies, or mistakes, which can be removed easily, a jump of 25-50 points in the score may not be a huge achievement at all.

These types of businesses can be valid choices when people just want to improve their credit score by a small number, to achieve a certain interest rate, or obtain a decent credit limit.

Such companies may or may not have the competence to take on serious issues that pull down the credit rating.

If you have been researching on credit repair options, then a little research and choosing the right credit repair company can take a huge load off of you. The right credit repair company can not only increase your FICO score but also help you improve your financial health. Not a bad deal!